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Empowering States

India needs a robust social security framework to better cater to the needs of its future generations

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The single most important measure of activity in any economy is the gross domestic product (GDP). Forecasting it in the far future is akin to tea leaf reading. Despite the exacting criticism, forecasts are routinely made primarily by economists to aid policy intervention in the hope of a better, inclusive and sustainable economic future. Let us assume therefore that forecasts have some social value. From about 8.5 trillion of GDP today in purchasing power parity (PPP), India is projected to become the second largest economy in the world by 2050, just above the US and behind China, with a GDP at PPP of above 40 trillion, roughly five times of today’s value. By that time, India’s population might be 1.7 billion, way ahead of China’s 1.35 billion. That will be a massive rise in population since independence, capturing in part the vast potential of a young population that India will embody until 2050, while also exposing us in part to the despair that has often found utterance in the expression  ‘jobless growth’.      

But economic growth is crucial; it helps in poverty reduction. Between 2004-05 and 2011-12, growth lifted about 140 million people out of poverty. Over the next three decades, structural transformation will imply that 50 per cent of the total population i.e., 850 million will be living in cities that will produce majority of the new jobs and contribute an overwhelming share of taxes.

For Indian cities to be the clean engine driving growth, the resource-intensive model of the past has to be replaced with one that encourages use of public transport, punishes wasteful energy use, encourages reuse and recycling, and creates compact, connected and coordinated cities that leverage the benefits of agglomeration.  

But will future generations have productive jobs? With the spectre of automation hanging like the sword of Damocles, education and skills will assume critical significance. A technology-induced increase in the size of the cake could involve improved tax collections as a percentage of GDP that will allow more and better redistribution, an area where India has been deficient. This needs immediate turnaround. Thus, creation of a robust social security architecture ought to be accompanied by massive improvement in states’ capacity to implement policy and prevent leakages. Only then will India’s social protection framework serve the needs of its future generations.

Growing protectionist pressures in the global economy will regrettably sustain and given the experience of Japan, Korea and China that have benefited massively from an open global economy, India’s advantage lies in expending resources to keep the system open.

Gradualism has and will be India’s preferred approach to domestic economic reform. Much of global empirical evidence is also in favour of gradualism. Collective action in democratic India with multiple institutions and actors has a logic of its own —sometimes described as ‘fitful and opportunistic’ — and often reforms have to contend with both ideological and substantive opposition. More decentralisation, in which not only states but cities too are made responsible for their own destiny through directly elected representatives maybe the long-term agenda on which serious discourse could begin now. Rapid growth has put pressure on India’s institutions in the past, including the decay due to crony capitalism. Future growth is more likely to emerge through robust institutions and strong state capacity. India will be wise to invest in it.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Rajat Kathuria

The author is director & chief executive of ICRIER

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